Teva Pharmaceutical Industries Ltd. Downgraded To #BB# On Continued Challenges To Outlook Stable

NEW YORK (S&P Global Ratings) Feb. 8, 2018--S&P Global Ratings today lowered its long-term corporate credit rating on Israel-based Teva Pharmaceutical Industries Ltd. to 'BB' from 'BBB-' and removed the rating from CreditWatch, where we placed with negative implications on Feb. 2, 2018.

The outlook is stable. At the same time, we lowered our issue-level rating on the senior unsecured debt to 'BB' and assigned a '3' recovery rating to this tranche. We removed the issue-level rating from CreditWatch with negative implications.

The '3' recovery rating reflects our expectation for meaningful (50%-70%; rounded estimate 50%) recovery in the event of a payment default. The rating action on Teva reflects a series of lower-than-expected operating results following the 2016 acquisition of Actavis Generics for $33.4 billion in cash and additional equity. We initially believed the acquisition would deliver a material boost to Teva's future generic first-to-market performance, as well as provide a level of scale that would give Teva a competitive advantage over peers like Mylan and Perrigo.

In addition to revising our financial forecasts lower, the successive operating misses led us to lower our expectations for Teva's long-term stability and predictability. Our stable outlook reflects our expectation for substantial revenue declines from Copaxone and U.S. generics in 2018, but that cost cutting and more stable U.S. generics results by 2019 will support gradual deleveraging and still-significant free cash flow generation. We expect free cash flow of about $2.6 billion in 2018 and $2.2 billion in 2019, commensurate with average FFO to debt of about 12% from 2017-2019.